How Sentiment can Change Everything - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 31 May 2014
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- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
Ever since Narendra Modi and the BJP won the election, there is a definite change in sentiment. Prior to the election, sentiment surrounding the economy and the Indian government was extremely negative. For example, over the last year, the rupee hit its lowest value against the dollar. Investment in the economy slumped due to a lack of confidence.

In the last two weeks, the outlook has changed considerably and the financial markets are reflecting this change. The rupee is back below 60 to the dollar. The stock markets are at record highs. They rose in anticipation of a BJP victory, and have continued to climb higher ever since.

The good news is that even a change in sentiment alone can have real positive effects. Even if the new government changes nothing, the positive outlook will lead to more investment and an overall improvement in economic performance.

While the positive sentiment we see now is a good thing, the downside is that sentiment can change very quickly. Typically, a new government experiences positive sentiment for at least one year. They are given the benefit of the doubt and the time to implement their policy agenda.

What is important for the new government over the next year is to actually implement the policy changes everyone is expecting. The next three months are especially critical as their support is greatest at the very beginning. The next three months are the best time as any to push through important legislation to liberalize and jump-start the economy.

It is an absolute breath of fresh air that we no longer criticize the government at every opportunity. The political environment of the last couple of years has been unfortunately characterized by a lot of finger pointing and blame, but no action whatsoever.

A positive sentiment is exactly what our country needs to get us out of our current economic slump. As has been witnessed time and time again, positive sentiment is crucially important for the government to be successful in implementing economic policy. Let us hope that we make the best of this opportunity.

In this weekend's DR, we are asking the question, "Do you expect that the government will be successful in implementing meaningful economic reforms?" We invite you to please login and post your views.

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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1 Responses to "How Sentiment can Change Everything"

sankaranarayanan .K

Jun 1, 2014

BJP should be able to achieve their tasks as long as they concentrate only on Growth.If they divert their attention to RAM MANDIR /Article 370 they would get into unproductive areas and would affect their main goal

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